LONDON Feb 4 A panel of European Union
lawmakers has overwhelmingly backed a draft law throwing open
the settlement of share and bond trades to competition if backed
by closer scrutiny and other safeguards.
Settling trades, the final step in any deal in which
ownership of a security is transferred to a buyer, relies on a
multi-trillion euro system to swap legal title in return for
The system stood up well during the financial crisis and
none of the 30 central securities depositories in the EU needed
The draft law, approved by the European Parliament's
economic affairs committee in a 37 to 4 vote in Strasbourg,
France, seeks to turn a fragmented landscape into a more
efficient, better-regulated system to cut cross-border trading
costs for investors.
The lawmakers also agreed to open talks with EU states,
which have joint say, on a final text that will become law.
Many exchange operators earn handsome profits from
depositories. Deutsche Boerse, for example, owns
Clearstream Frankfurt and Clearstream Luxembourg, where it
directs most trades from its exchanges.
The draft law sets parameters for competition and
accelerates fundamental changes already under way in the sector.
For the first time, it gives authorised settlement houses a
pan-EU "passport" to operate across the 27-nation bloc - as long
as they are adequately capitalised and comply with safety rules.
Operators like Euroclear and Clearstream in Luxembourg will
undergo a far more demanding authorisation if they want to keep
their banking operations under the same roof as the more
straightforward settlement operations.
The law, which will likely take effect in 2014, also
harmonises settlement times to a maximum of two days following
the trading day. There would also be penalties on banks and
brokers that fail to settle trades on time.
The European Central Bank, in parallel to the EU reform, is
setting up a one-stop shop securities settlement platform for
the euro zone to slash trading fees and help rationalise the
number of settlement houses.